Indirect-Purchaser Exceptions To Illinois Brick Continue

Consumers seeking to recover for economic harm caused by anti-competitive conduct often run headlong into the so-called Illinois Brick wall: Antitrust damages under federal law are reserved exclusively for the “direct purchaser” of the price-fixed good, even when that direct purchaser acts solely as a middleman who passes on the illegal overcharge to the end-user consumer.[1]

Naturally, any potential alteration to this 35-year-old bright-line rule (and its few exceptions) attracts a great deal of interest within the antitrust community. So it was with the Ninth Circuit’s ATM Fee decision last year, in which the court reaffirmed — but declined to expand — the limited exceptions to Illinois Brick that allow indirect-purchaser damages.[2]

Interestingly, instead of signaling a chilling effect on the use of Illinois Brick exceptions, at least two district courts have, in the wake of ATM Fee, rejected attempts to constrain what is the most frequently invoked exception, applicable where there is ownership or control of the direct purchasers by the antitrust violators, suggesting that while the Illinois Brick exceptions may be limited, they are surprisingly durable.[3]

In two separate multidistrict litigations in the Northern District of California, the courts have held that the ownership/control exception allows plaintiffs who purchased finished goods from direct purchasers of allegedly price-fixed components to maintain Clayton Act damages claims against the component makers, because the direct purchasers and the component makers were under common control.

The courts in the TFT-LCD Flat Panel and Cathode Ray Tube (CRT) cases each faced unique twists on the traditional application of the ownership/control exception.[4] In TFT-LCD, the defendants sold allegedly price-fixed panels to manufacturers of finished LCD products, who in turn sold those products to the plaintiffs. But the panel-maker defendants did not directly own the finished product manufacturers in a straight “top-down” parent/subsidiary relationship.

Instead, a variety of corporate relationships existed, with some finished product manufacturers controlling some panel maker defendants, and other finished product manufacturers controlling alleged co-conspirators of the panel maker defendants. The defendants argued that ATM Fee cabined the ownership/control exception to situations where a defendant maker of a price-fixed good owns the direct purchaser.

The TFT-LCD court rejected this one-way approach: “Nowhere in the ATM Fee decision did the court mandate that the ownership/control relationship be limited only to a manufacturer/seller and direct purchaser.”[5] The court explained that the ownership/control exception focused on the existence of a corporate relationship between an antitrust violator (whether as a named defendant or co-conspirator) and the direct purchaser (whether as the parent or subsidiary).

Just days later, the CRT court issued its decision on the applicability of the ownership/control exception, tackling a different permutation presented by a case in which, similar to TFT-LCD, the plaintiffs alleged that price-fixed CRT components were incorporated into finished CRT products manufactured by direct purchasers controlled by the defendants.

The CRT defendants argued that the ownership/control exception should not be applied because the plaintiffs bought finished CRT products which had supposedly “transformed” the price-fixed component cathode ray tubes. The CRT court declined to create an exception to the exception: “The policies underlying Illinois Brick and its exceptions apply with equal force regardless of whether or how a particular good is modified as it passes through the chain of distribution.”[6]

For practitioners litigating antitrust cases in the Ninth Circuit, these district court decisions show that the Illinois Brick exceptions allowing indirect purchasers to recover damages have not been diminished by the ATM Fee decision. That is, the reluctance of the courts to create new exceptions appears to be matched by a countervailing resistance against efforts to hobble the existing ones.

Promotion of the “longstanding policy of encouraging vigorous private enforcement of the antitrust laws” is cited by Illinois Brick and ATM Fee as a basis for enforcing the rule generally limiting federal antitrust damages to direct purchasers.[7] As seen in TFT-LCD and CRT, continued application of the exceptions to the Illinois Brick rule is just as vital to promoting such private enforcement.

Christopher Micheletti is a partner and Patrick Clayton is an associate in the San Francisco office of Zelle Hofmann, which serves as counsel for the indirect-purchaser plaintiffs in both the TFT-LCD and CRT cases.

The opinions expressed are those of the authors and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).

[2] In re ATM Fee Antitrust Litig., 686 F.3d 741 (9th Cir. 2012).

[3] The district courts relied on a Ninth Circuit decision, Royal Printing v. Kimberly-Clark, 621 F.2d 323 (9th Cir. 1980), which permitted a printer to sue paper manufacturers for antitrust damages, even though the printer bought the allegedly price-fixed paper through a distributor. Because the distributor was owned by the members of the alleged paper cartel — who presumably would forbid the distributor from suing the cartel, thereby thwarting one of the purposes of Illinois Brick, which was to further incentivize direct purchasers to bring antitrust suits when damaged — the Ninth Circuit articulated an “ownership or control” exception to allow the printer to sue the cartel members for damages.

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